Model funding rounds, calculate ownership percentages, and understand how dilution impacts founder and employee equity
This calculator models how startup equity ownership changes through multiple funding rounds. It provides founders, employees, and investors with accurate projections of how their ownership stake will be affected by dilution events including venture capital investments, option pool creation, and convertible instrument conversions.
Equity dilution occurs when new shares are issued, reducing each existing shareholder's percentage ownership. The fundamental formula is straightforward: your new ownership percentage equals your shares divided by the new total shares outstanding. If you own 1,000,000 shares out of 10,000,000 (10%), and the company issues 2,500,000 new shares, you now own 1,000,000 out of 12,500,000 (8%). Your absolute share count stayed the same, but your relative ownership decreased.
Understanding the difference between pre-money and post-money valuation is crucial for accurate dilution calculations. Pre-money valuation represents the company's value before new investment. Post-money valuation equals pre-money plus the investment amount. Investor ownership is calculated by dividing investment by post-money valuation. For example, a $2M investment at $8M pre-money creates a $10M post-money valuation, giving investors 20% ownership.
Option pools are typically created from founder equity before funding rounds, a practice called "pre-money option pool." This means founders bear 100% of the option pool dilution while investors maintain their target ownership. A 15% option pool in a Series A might reduce founder ownership from 100% to 85% before investors even participate. This calculator models option pool creation to show its true dilution impact.
Startup equity compounds through multiple rounds. After Seed, Series A, Series B, and beyond, founders may retain only 20-30% of their company. This calculator tracks ownership through each round, showing exactly how much each stakeholder is diluted at each stage. You can model future rounds to understand where you'll end up at IPO or acquisition.
The calculator uses standard venture capital mathematics based on NVCA (National Venture Capital Association) term sheet conventions. Default valuations and round sizes reflect 2024-2025 market conditions, though you should adjust inputs based on your specific circumstances, industry, and market timing. All calculations assume straightforward equity transactions without complex provisions like participating preferred or multiple liquidation preferences.
Before entering fundraising discussions, founders should model various scenarios to understand their potential dilution. If you're targeting a $10M Series A, test different pre-money valuations from $15M to $30M to see how each affects your ownership. Understanding these numbers helps you negotiate effectively and set realistic expectations with co-founders about post-round ownership.
When you receive a term sheet, run the numbers through this calculator immediately. Pay special attention to option pool requirements - if investors want a 15% unallocated pool versus your current 8%, that 7% difference comes entirely from founder equity at pre-money valuations. Compare multiple term sheets not just on valuation but on total founder dilution including option pool requirements.
Employees joining startups need to understand how their equity will be diluted over time. If you're offered 0.5% today, this calculator helps you project what that becomes after Series A, B, and C rounds. A realistic expectation might be 0.15-0.2% at exit. This information helps you evaluate whether the equity component adequately compensates for salary sacrifice.
When dividing founder equity, consider future dilution impacts. If two co-founders split 50/50 today, after typical dilution they might each own 12-15% at Series C. A 60/40 split results in 14-18% vs 10-12%. Understanding these projections helps set expectations and may influence decisions about how to divide equity initially.
Companies should regularly model their cap table forward to ensure enough equity remains for employee incentives and future fundraising. If your option pool is depleted after three years and you need to expand it, that expansion typically happens at the next round's pre-money valuation, diluting founders. Use this calculator to plan option pool refreshes strategically.
When evaluating potential exits, project forward to see what your ownership will be worth. If you own 25% today and expect one more funding round with 20% dilution, you'll exit with 20%. At a $100M exit, that's $20M vs $25M - a meaningful difference. This calculator helps you understand the true economics of waiting for more growth versus exiting earlier.
Fully diluted shares include all shares that would be outstanding if every option, warrant, convertible note, and SAFE converted to common stock. This is the denominator used for calculating ownership percentages. It includes issued and outstanding shares, shares reserved in the option pool (both granted and ungranted), and shares from converted instruments. Always calculate ownership on a fully diluted basis to get an accurate picture.
These are the two most important numbers in any funding round. Pre-money valuation is what investors believe the company is worth before their investment. Post-money equals pre-money plus investment. Investor ownership is investment divided by post-money. A $2M investment at $8M pre-money gives 20% ownership ($2M / $10M post-money). The same $2M at $18M pre-money gives only 10% ($2M / $20M).
The "option pool shuffle" refers to investors requiring an expanded option pool as part of the pre-money valuation. If investors want 15% unallocated options and you currently have 5%, that 10% increase reduces the effective pre-money valuation for founders. On a $10M pre-money, the 10% pool expansion is effectively $1M coming from founder equity, making the true pre-money $9M for founders.
Investors often negotiate anti-dilution protection, which adjusts their ownership if the company raises money at a lower valuation (down round). Full ratchet anti-dilution adjusts the conversion price to the new, lower price. Weighted average anti-dilution uses a formula that considers both the magnitude of the down round and the amount of new money raised. This protection shifts down-round dilution from investors to founders and employees.
Pro-rata rights allow existing investors to maintain their ownership percentage by participating in future rounds. If an investor owns 15% and has pro-rata rights, they can invest enough in the next round to keep 15%. This means more money going to existing investors and potentially less available for new investors or higher valuations needed to accommodate everyone.
Pay-to-play requires existing investors to participate in future rounds to maintain their preferred stock benefits. Investors who don't participate have their preferred shares converted to common stock, losing liquidation preferences and anti-dilution protection. This provision encourages continued investor support but can create difficult dynamics if some investors can't participate.
While not directly causing dilution, liquidation preferences affect the economic value of each share class. A 1x non-participating preference means investors get their money back before common shareholders receive anything. Participating preferred gets both the preference and a share of remaining proceeds, effectively reducing the value of common shares and option grants.
SAFEs (Simple Agreement for Future Equity) and convertible notes convert to equity at a future priced round. They typically include a discount (10-25%) and/or a valuation cap. The actual dilution depends on conversion terms and the priced round's valuation. Multiple instruments stacking can create significant "hidden" dilution that materializes all at once when they convert.
Many founders focus only on the investment amount and pre-money valuation without considering option pool requirements. If investors require a 15% unallocated pool and you have 5%, that 10% expansion comes entirely from your equity at pre-money valuation. On a $10M pre-money deal, you're effectively giving up $1M in equity value. Always calculate your true dilution including option pool expansion.
Optimizing for a single round can lead to poor long-term outcomes. Accepting a lower valuation in Series A might seem fine until you realize it sets a lower baseline for Series B and compounds your dilution. Conversely, pushing for too high a valuation can lead to a down round later, triggering anti-dilution provisions that significantly dilute founders. Model your full expected financing trajectory.
A SAFE with a $5M cap doesn't mean investors paid a $5M valuation - it means they'll convert at the lesser of the cap or the next round's price minus any discount. If your Series A is at $4M pre-money, the cap doesn't help SAFE holders. If it's at $8M, SAFE holders convert at the capped $5M, getting significantly more shares than Series A investors per dollar invested.
Each SAFE or convertible note you issue adds potential dilution that materializes at your next priced round. If you've raised $500K on SAFEs at a $5M cap and then raise Series A at $10M pre-money, those SAFEs convert to 10% ownership before Series A pricing applies. Multiple convertibles can create 20-30% "hidden" dilution, significantly reducing founder ownership beyond what they expected.
Creating too small an option pool means you'll need to expand it sooner, likely at your next funding round's pre-money valuation. This expansion dilutes founders disproportionately. However, creating too large a pool wastes equity if you don't use it all. Model your hiring plan carefully and create a pool sized for 18-24 months of anticipated grants.
If your Series A investors have weighted average anti-dilution and you raise a down round, their conversion price adjusts, giving them more shares. This additional dilution comes from founder and employee equity. A 50% down round might result in 10-20% additional dilution for founders depending on the anti-dilution formula and round sizes.
Not all term sheets are directly comparable. A $12M pre-money with 12% option pool requirement and no anti-dilution might be better than a $15M pre-money with 18% option pool and full ratchet anti-dilution. Calculate your effective ownership under various scenarios, including potential down rounds, before comparing offers purely on headline valuation.
Secondary sales where founders sell shares to investors don't directly dilute ownership percentages, but they can affect company dynamics and future negotiations. Large secondary sales might signal lack of founder commitment to investors. They also set price precedents that can affect future valuations and employee equity value expectations.
Push for post-money option pool creation rather than pre-money. If the option pool is created after investment, dilution is shared proportionally among all shareholders including new investors. On a $10M round, a 10% post-money option pool dilutes everyone equally. A 10% pre-money pool comes entirely from founder equity, effectively reducing your pre-money valuation by 10%.
Don't accept arbitrary option pool requirements. Build a detailed hiring plan for the next 18-24 months with specific roles and equity ranges. Present this to investors to justify a smaller pool. If you need 8% for your plan, push back on 15% requirements. Unused options at the next round just become leverage for investors to demand another pre-money expansion.
The best way to minimize dilution is to maximize valuation, and the best way to maximize valuation is to create competitive tension. Run a proper fundraising process with multiple potential investors. Even if you prefer one investor, having alternatives gives you negotiating leverage on valuation, option pool requirements, and other terms that affect dilution.
For companies with predictable revenue, revenue-based financing or venture debt can provide growth capital without equity dilution. You repay from future revenue with interest, but keep your equity. This is particularly attractive when you're close to profitability or expect a significant valuation increase before your next equity round.
Push for broad-based weighted average anti-dilution rather than narrow-based or full ratchet. Include carve-outs for down rounds below certain thresholds. Negotiate "pay-to-play" provisions requiring investors to participate in down rounds to maintain anti-dilution protection. These negotiations can significantly reduce founder dilution in adverse scenarios.
Raise enough capital to reach meaningful milestones that justify significant valuation increases. Raising $2M at $8M and then $5M at $15M dilutes you more than raising $7M at $15M upfront. However, raising too much too early at a high valuation can set unsustainable expectations. Model various paths and choose one that balances dilution with execution risk.
SAFEs and convertible notes can be tools to delay valuation discussions until you have better metrics. However, they stack and create hidden dilution. If using convertibles, negotiate reasonable caps and consider the total dilution when they convert. Avoid raising too much on convertibles before a priced round.
Not every company needs to raise multiple rounds of venture capital. Bootstrapped or lightly funded companies retain more founder ownership. A $20M exit with 60% ownership ($12M) might be preferable to a $100M exit with 10% ownership ($10M) after considering time value, risk, and lifestyle factors.
Explore our other startup and equity tools: The Cap Table Calculator helps you build and visualize your complete capitalization table. The Stock Option Value Calculator estimates the potential value of employee stock options. For early-stage companies, our SAFE Conversion Calculator models how SAFEs convert to equity.
The NVCA (National Venture Capital Association) provides model term sheets and legal documents that represent industry-standard terms. YCombinator's SAFE documents are widely used for early-stage fundraising. Understanding these documents helps you negotiate better terms and anticipate dilution impacts.
Valuation norms vary significantly by stage, sector, and market conditions. Seed rounds in 2024-2025 typically range from $5-15M pre-money for most sectors, with exceptional companies commanding more. Series A valuations typically range from $15-40M pre-money. These benchmarks help you understand where your company might fall and how much dilution to expect.
The First Round State of Startups and various compensation surveys provide data on typical employee equity grants by role and stage. A VP of Engineering joining at Series A might receive 0.5-1.5%, while the same role at Series C might be 0.1-0.3%. Understanding these ranges helps both companies and employees negotiate fairly.
Equity transactions have significant legal implications. Issues like 409A valuations for option grants, securities law compliance for fundraising, and proper documentation for cap table changes require professional legal guidance. We recommend working with experienced startup attorneys for all equity-related matters.
While this calculator provides accurate mathematical modeling, every situation is unique. Consider consulting with startup attorneys for legal structuring, tax advisors for equity compensation planning, and experienced CFOs or financial advisors for cap table strategy. Schedule a consultation with our team to discuss your specific situation.
Comprehensive answers to common questions about equity dilution, startup fundraising, and ownership mechanics.
Equity dilution occurs when a company issues new shares, reducing existing shareholders' ownership percentages. While your absolute number of shares remains the same, those shares represent a smaller portion of the total company. Dilution typically happens during funding rounds, employee option grants, warrant exercises, or convertible note conversions.
For example, if you own 1,000,000 shares out of 10,000,000 total (10% ownership), and the company issues 2,500,000 new shares, you still own 1,000,000 shares but now out of 12,500,000 total (8% ownership). You've been diluted by 2 percentage points, or 20% of your original stake.
Not necessarily. The key question is whether dilution increases the total value of your shares despite reducing your percentage. If you own 20% of a $10M company ($2M value) and take dilution to own 15% of a $50M company ($7.5M value), you're better off despite the dilution. This is sometimes called "value accretive" dilution.
However, dilution becomes problematic when it doesn't correspond with value creation, when it's excessive relative to capital raised, or when terms like anti-dilution provisions shift risk disproportionately to founders and employees. Always evaluate dilution in context of the value being created.
Typical dilution per round varies by stage and market conditions. Seed rounds typically dilute founders by 15-25%. Series A rounds typically dilute by 20-30%, including option pool expansion. Series B and later rounds typically dilute by 15-25%.
After several rounds plus employee option pool, founders often retain 15-30% at Series C and 10-20% at IPO. These are rough benchmarks - actual dilution depends on your negotiating leverage, market conditions, and company performance.
Pre-money valuation is what investors believe the company is worth before their investment. Post-money valuation equals pre-money plus the investment amount. Investor ownership percentage equals their investment divided by post-money valuation.
Example: A $10M pre-money valuation with $2.5M investment creates a $12.5M post-money valuation. Investors get $2.5M / $12.5M = 20% ownership. Existing shareholders own the remaining 80%, diluted from 100%.
Option pools are typically created or expanded at each funding round, and investors usually require the pool to be sized from the pre-money valuation. This means founder equity bears 100% of the option pool dilution while investors maintain their target ownership percentage.
A 10% pre-money option pool effectively reduces your pre-money valuation by 10%. On a $10M stated pre-money, the option pool represents $1M, leaving only $9M in effective pre-money valuation for founders. Negotiate option pool size carefully based on actual hiring needs.
Size your option pool based on actual hiring plans rather than arbitrary percentages. Build a detailed hiring plan for 18-24 months, estimate equity grants for each role based on market data, and add a 15-20% buffer. Common ranges are 10-15% for Seed, 15-20% for Series A, and 5-10% refreshes for later rounds.
Avoid oversized pools that dilute founders unnecessarily. Unused options don't disappear - they become leverage for investors to demand another pre-money expansion at your next round.
Unallocated option pool shares remain reserved for future grants. They're included in fully diluted share counts and ownership calculations. At your next funding round, investors will assess the remaining pool and may require expansion if it's insufficient for projected hiring.
Strategic pool management matters. Running out of options before your next round means expanding the pool at the new round's pre-money valuation. Conversely, having excessive unallocated options means you over-diluted founders in the previous round.
SAFEs and convertible notes are debt-like instruments that convert to equity at a future priced round. They typically include a discount (10-25%) and/or a valuation cap. The conversion creates dilution at the priced round, often at more favorable terms than the priced round investors receive.
The actual dilution depends on the conversion terms and the priced round's valuation. If a $500K SAFE has a $5M cap and your Series A is at $10M, the SAFE converts at the cap, resulting in 10% ownership from the SAFE alone. Multiple SAFEs can create substantial "hidden" dilution.
A valuation cap sets the maximum valuation at which a SAFE or convertible note will convert to equity. If the priced round's valuation exceeds the cap, the instrument converts at the capped valuation, giving investors more shares per dollar than the priced round investors.
Example: A SAFE with a $5M cap invested $100K. If Series A is at $20M, the SAFE converts at $5M (the cap), not $20M. The SAFE gets 2% ownership ($100K / $5M) instead of 0.5% ($100K / $20M). This rewards early investors for taking early-stage risk.
SAFEs are faster, cheaper, and simpler - ideal for small early raises when you want to delay valuation discussions. Priced rounds provide clarity on ownership and are better for larger raises or when you have leverage for a good valuation.
Consider SAFEs for pre-seed/seed raises under $1M when you lack clear metrics for valuation. Consider priced rounds when raising larger amounts, when you have strong metrics, or when SAFE stack becomes unwieldy. Too many SAFEs create complex cap tables and hidden dilution.
Anti-dilution protection shields investors from dilution in down rounds - funding rounds at a lower valuation than previous rounds. When triggered, investors receive additional shares or their conversion price adjusts, maintaining more of their ownership percentage. This protection shifts down-round risk from investors to founders and common shareholders.
Two main types exist: Full ratchet (harshest - adjusts as if investors invested at the new lower price) and weighted average (more common - uses a formula considering both prices and amounts). Negotiate for broad-based weighted average with reasonable carve-outs.
Pro-rata rights allow investors to maintain their ownership percentage by participating in future funding rounds. If an investor owns 10% and has pro-rata rights, they can invest proportionally in the next round to maintain 10% ownership.
This protection benefits investors by preventing dilution, but can complicate fundraising. New investors may want more ownership than available after existing investors exercise pro-rata rights. Some companies negotiate "super pro-rata" limits or sunset provisions.
Liquidation preferences determine payment order in an exit. A 1x non-participating preference means investors get their investment back before common shareholders receive anything. If investors put in $5M with 1x preference and the company sells for $6M, investors get $5M, and $1M remains for everyone else.
Participating preferred gets both the preference AND a share of remaining proceeds, significantly reducing common stock value. Multiple liquidation preferences (2x, 3x) require even larger exits before common shareholders benefit. Negotiate for 1x non-participating whenever possible.
Employee stock options typically experience 50-75% dilution from grant to exit. If you receive 0.5% at Series A, you might have 0.15-0.25% at IPO after Series B, C, and D rounds. This isn't necessarily bad if company value has grown proportionally - 0.2% of a $1B company is worth more than 0.5% of a $50M company.
Ask employers about their funding plans and typical dilution to set realistic expectations. Well-run companies communicate cap table impacts transparently.
Equity ranges vary significantly by stage, role, and company. General guidelines for initial grants: Early employee #1-5: 1-2%. Employee #6-20: 0.25-1%. VP/Director at Series A: 0.5-1.5%. VP/Director at Series C: 0.1-0.3%. Senior IC: 0.1-0.5% at Series A, 0.02-0.1% at Series C.
These are starting points - actual grants depend on leverage, experience, and company circumstances. Research market data from sources like Carta, AngelList, and compensation surveys.
The answer depends on company stage, your risk tolerance, and personal financial situation. Early-stage equity has higher potential upside but more risk and liquidity constraints. Later-stage equity is more certain but with less upside.
Consider: Can you afford the salary difference? What's your confidence in the company's exit? How long until potential liquidity? Generally, take more equity at earlier stages if you can afford the salary trade-off, and prioritize salary at later stages where equity upside is more limited.
Key strategies include: Maximize valuation through competitive fundraising processes and strong metrics. Negotiate option pool timing (post-money vs pre-money) and size. Consider non-dilutive funding like revenue-based financing or venture debt. Raise enough to reach meaningful milestones that justify significant valuation increases.
Also consider not raising at all if you can achieve profitability or reach better metrics first. Sometimes the best dilution optimization is delaying fundraising until you have more leverage.
Higher valuations aren't always better. Excessive valuations create pressure to perform, can lead to down rounds with anti-dilution triggers, and may reduce your flexibility in future negotiations. Accept higher dilution for higher valuation when you have strong confidence in achieving growth targets, when it brings strategic value beyond capital, and when the terms are otherwise favorable.
A lower valuation from the right investor with founder-friendly terms may be preferable to a higher valuation with onerous terms or from investors who can't add strategic value.
Solo founders typically retain 15-30% at IPO or late-stage acquisition. Two-founder teams might collectively retain 20-35%. These percentages vary based on capital intensity, round count, and negotiating success. Companies requiring less capital or achieving rapid growth can retain more; capital-intensive businesses typically retain less.
Focus on maximizing absolute value rather than percentage. 15% of a $10B company significantly outperforms 40% of a $100M company. Dilution is the cost of building something larger than you could build alone.
Secondary sales - where existing shareholders sell their shares to buyers - don't create dilution because no new shares are issued. The total share count stays the same; ownership just transfers between parties. However, secondary sales affect pricing expectations and can influence primary round terms.
Secondary sales can provide founder liquidity without dilution, but may signal lack of commitment if excessive. They also set price precedents that affect employee equity valuations and investor expectations.
Project your ownership at the time of each potential exit scenario. If Company A offers to acquire you today for $50M and you own 30% ($15M), compare that to staying independent, raising another round with 20% dilution to own 24%, and selling later for $80M ($19.2M) or $120M ($28.8M).
Factor in time value of money, risk of not achieving higher valuations, and personal factors. Dilution is just one variable - also consider deal structure, earnouts, retention requirements, and strategic fit.
Need personalized guidance on equity structuring, fundraising strategy, or cap table planning? I offer consultations for founders and startups on equity matters.